If the market for a product begins as perfectly competitive and then becomes a monopoly, there will be a reduction in economic efficiency and a deadweight loss.

Question

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When a market transitions from perfect competition to monopoly, the monopolist gains market power and can restrict output and raise prices which reduces economic efficiency by decreasing the quantity of the product produced and sold in the market. This reduction in output creates a deadweight loss or a loss of consumer surplus and often leads to higher prices for consumers.

If the Market for a Product Begins as Perfectly Competitive